Stability of exponential utility maximization with respect to market perturbations

Erhan Bayraktar and Ross Kravitz

Stochastic Processes and their Applications, 2013, vol. 123, issue 5, 1671-1690

Abstract: We investigate the continuity of expected exponential utility maximization with respect to perturbation of the Sharpe ratio of markets. By focusing only on continuity, we impose weaker regularity conditions than those found in the literature. Specifically, we require, in addition to the V-compactness hypothesis of Larsen and Žitković (2007) [13], a local bmo hypothesis, a condition which is essentially implicit in the setting of [13]. For markets of the form S=M+∫λd〈M〉, these conditions are simultaneously implied by the existence of a uniform bound on the norm of λ⋅M in a suitable bmo space.

Keywords: Utility maximization on the real line; Continuous semi-martingales; Stability with respect to market price of risk; bmo martingales; V-compactness (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (6)

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Working Paper: Stability of exponential utility maximization with respect to market perturbations (2012)
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DOI: 10.1016/j.spa.2012.12.007

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